More than 7,000 companies globally, employing 130 million people, can't pay back loans and are drowning in debt.
Massive List of Businesses that have failed to generate sufficient revenue from operations to cover even the interest on their loans for the past three years.
I’m reminded of that horrible Jingle “Wayfair, You Got Just What I Need”
They do get the credit for understanding the power of a jingle. Jingles use rhyme, rhythm, and repetition so the customer remembers the word Wayfair with the BUY command (They have everything you need). I could write a sermon on how shallow and bold it is for them to say a company selling sweatshop-sourced furniture, fixtures, equipment, and goods is [Just what I need].
In this article you will learn that a massive majority of companies rise on a sea of debt
The Rise of Zombie Companies: A Growing Threat to the Global Economy. In recent years, a concerning trend has emerged in the corporate world: the proliferation of "zombie companies." These are businesses that have failed to generate sufficient revenue from operations to cover even the interest on their loans for the past three years.
The number of such companies has surged globally, with more than 7,000 firms employing approximately 130 million people now struggling to repay their debts.
In the United States alone, about 2,000 companies find themselves in this precarious position. This surge in zombie companies can be attributed to years of accumulating cheap debt, followed by stubborn inflation that has pushed borrowing costs to decade-high levels. Notable U.S. companies on this list include JetBlue Airways, Wayfair, Bed Bath and Beyond and Peloton. But there are more than 7,000 of these stories and in most cases the workers get fu-ked while the top admins enrich themselves and escape the ship right before it drowns.
The rise of zombie companies is not merely a recent phenomenon. Over the past decade, the number of zombies has increased by nearly 30 percent, even when limiting the analysis to companies that existed a decade ago. This trend has raised concerns among economists and financial experts about the potential impact on the broader economy.One of the key factors contributing to the zombie company problem is the misuse of corporate funds, particularly through excessive stock buybacks. These buybacks can drain cash from a business, leaving it vulnerable to financial distress.
A prime example of this is the case of Bed Bath & Beyond, a retail chain that once operated 1,500 stores. The company's heavy borrowing and decision to spend $7 billion on buybacks over a decade played a significant role in its downfall.
The 2017 tax overhaul presented an opportunity for companies to reduce their debt by slashing corporate rates and allowing the repatriation of overseas profits. However, instead of using this windfall to strengthen their financial positions, most companies opted to spend it on buybacks. In the two years following the tax cut, U.S. companies spent a record $1.3 trillion on repurchasing and retiring their own stock, representing a 50 percent increase from the previous two years. Another example of a company that engaged in excessive buybacks is SmileDirectClub.
The teeth-straightening company went from spending just over $1 million a year on buying its own stock before the tax cut to $780 million afterward. This increase in buybacks coincided with boosted pay packages for top executives, with one former CEO receiving $20 million in just four years. Unfortunately, the heavily indebted company's stock plummeted before it went out of business last year, resulting in 2,700 job losses.
The prevalence of zombie companies poses several risks to the economy. These firms tie up capital and resources that could be more productively employed elsewhere, potentially hampering overall economic growth. Additionally, their continued existence can create a drag on productivity and innovation, as they struggle to invest in new technologies or expand their operations.
The current economic climate, characterized by rising interest rates and persistent inflation, is exacerbating the challenges faced by zombie companies. As borrowing costs increase, these firms find it increasingly difficult to service their debt, let alone invest in growth or innovation. This situation could lead to a wave of bankruptcies and job losses if economic conditions continue to deteriorate.
The zombie company phenomenon also raises questions about the effectiveness of monetary policies implemented in the aftermath of the 2008 financial crisis.
The era of low interest rates and easy money, intended to stimulate economic growth, may have inadvertently contributed to the creation and survival of these financially fragile firms.
As the situation unfolds, investors, policymakers, and corporate leaders must grapple with the implications of the zombie company problem. For investors, it highlights the importance of thorough due diligence and a focus on companies with strong fundamentals and sustainable business models. Policymakers may need to consider measures to address the risks posed by zombie companies while balancing the need for economic stability.
Corporate leaders, particularly those at the helm of struggling companies, must prioritize financial prudence and strategic decision-making. This may involve difficult choices such as restructuring debt, divesting non-core assets, or exploring merger opportunities to strengthen their financial positions.
The rise of zombie companies serves as a stark reminder of the interconnectedness of corporate finance, economic policy, and overall economic health. As the global economy continues to navigate uncertain waters, addressing the challenges posed by these debt-laden firms will be crucial in ensuring long-term stability and growth.
The infection of zombie companies represents a significant challenge to the global economy. With thousands of firms struggling under the weight of unsustainable debt, the potential for widespread economic disruption looms large. As we move forward, it will be essential for all stakeholders – from corporate leaders to policymakers and investors – to work together in addressing this issue and fostering a more resilient and sustainable economic landscape.
😂😂 Excellent analysis, but that will NEVER happen.
Economic stability? Sustainability? Hon, those are concepts for the plebes who think they’re important and that the world is limited. The name of the REAL game is musical chairs. Make sure the contest is rigged to beggar your neighbors ( customers, competitors, employees, stock holders), in order to insure that you always have a seat when the music stops. Shareholders last, of course, because they’re the cash cows, and they don’t really care anyway as long as they’re making good money on the way up. Most never see the end coming, and when they do, so what? The boyz and girlz at the top have already gotten theirs, the shareholders had the perpetually escalating profits they demanded, and what’cha gonna doaboudit anyway, suckers??
It seems that entrepreneurs who have larger businesses tend to be serial entrepreneurs, and characteristic of their thought is “there’s always a new frontier over the horizon”. The concept of limits isn’t part of their psychological makeup. So when one company goes bust, no problem, they’ve wrung whatever they can get out of it, anyway, and they’ll just move on. The number of fish in the sea is unlimited. Even the obvious collapse of entire ecosystems, like the Grand Banks cod fishery breaking, matters not because they just move on to wiping out whole populations of lesser fish. That’s an analogy for how serial entrepreneurs just shrug when big, profitable companies go under, take their profits and move on to hunt for smaller new companies to prey upon.
Share buybacks are just one good technique for fattening companies for slaughter as much and as quickly as possible, so they look great to prospective shareholders who want quick growth and high returns (seeing how both sides are guilty of creating the problem
together?). The spectacular growth generally fools investors and the rest of us into thinking there’s a real economic engine there, which there well may be - for a while. But with each increment of success, and especially before the final, spectacular surge (which may take place over a period of years), the execs are eating away at the corporate financial foundations like termites, siphoning off wealth that could, and should, have gone into creating stability and sustainability. But why sustain when you can exploit for bigger, quicker gains and always move on?
To the insatiable, self-aggrandizing adrenalin junkies who rise to the top, sustainability and stability are BORING when the REAL fun and money are to both be made by predatory corporation-hopping. And with no concepts of empathy, limits, interconnectedness or just good old-fashioned self-control or respect for others to constrain them, wha’s the problem? They genuinely think they’re doing the rest of us, especially the shareholders, a huge FAVOR, and they ought to be rewarded for that! Thinking in the long term is for suckers and losers. It’s all about the next quarter, baby! Making the books look good and pleasing them shareholders, who expect nothing but share prices going up, up, up every time they look at their stock account. If stocks didn’t constantly reward, investors would go back to buying safe and boring old bonds, and where’s the entrepreneurial opportunity in that??
So, put on the spectacular show today, reward and fatten your investor cattle
before slaughter, then grab the money and say “Adios!” before the suckers catch on. Wash your hands of the problems you’ve caused by retreating to your 7,000 square foot luxury log cabin in Montana or Idaho. Or your villa in France or Mexico. And don’t worry, it will never end. Or if it does, you’re prepped and will have no problem finding plenty of survivors ready and willing to serve you and look up to you as their hero for distributing your crusts of bread after the collapse happens.
So you’re saying you see a problem with this? 🤔